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Improving International Investment

Professor Garcia turns to philosophy to help explain the interlocking potential of peace, justice, and business.

BC Law Professor Frank Garcia 

Professor Frank Garcia’s research is in international economic law, primarily trade and investment law, from the perspective of global justice. Such law, he argues, has to be based in what works in the market, not on simple idealism, or it will not be good law. Two philosophers, Adam Smith and Immanuel Kant, play important roles in Garcia’s current thinking on this. As part of the research-based BC Law & Justice Program, which he directs, Garcia undertook a 2022 consulting project (with alum Suzanne Garner ’06 and recent grad Allyson Cavaretta ’23) for a developing country negotiating its first free trade agreement. More recently, Garcia spoke with Colombian business leaders as part of a peace process, in meetings arranged by Fr. Francisco de Roux, recent Boston College Gasson Chair visitor and president of the Colombian Truth Commission.

The following Q&A is an exploration of Garcia’s ideas, presented in four parts: 1) Why peace is good for business, 2) why justice is good for business, 3) why business is good for peace, 4) and why business is good for justice.

Q: What is the background of your belief that peace is good for business?

There is an easy version of this idea: Conflict disrupts markets, conflict drives up costs, conflict reduces the security of your investments. That is all true, but that is the obvious case. The relationship is actually much deeper. To explore this, I went back to the “father of capitalism,” Adam Smith.

Q: What can an 18th century Scottish philosopher tell us about the conditions for successful business in the 21st century?

A lot, it turns out. Smith is more famous for what he didn’t say, than for what he did say. Most people think he said that people are selfish, and so the virtue of capitalism is that it brings social good out of people’s selfishness. That is actually not what he said, at all. To begin with, Adam Smith was actually interested in markets, not capitalism. In fact, in all the length of his famous book, The Wealth of Nations, he never once uses the word capitalism.

More to the point, Smith did say that markets can bring social good out of people’s self-interest (the famous Invisible Hand). However, self-interest is not selfishness, and most importantly, markets are not built out of selfishness. Markets are built out of trust.

Smith said that for markets to work, for markets to play their vital social role, people need to trust each other. They need trust that people will keep their bargains, and that markets will be fair.

Q: Why is justice good for business? What does it mean for markets to be fair?

Here, I am talking about justice from a business point of view, in other words, a commercial view of fairness. From a commercial perspective, I think justice means mutually beneficial, and voluntary, exchanges. If exchanges aren’t voluntary, and they aren’t mutually beneficial, then they aren’t fair. Such transactions won’t build a market, nor will they create the social benefits that Smith wrote about, because they won’t build trust. In fact, I would call exchanges that aren’t voluntary and aren’t mutually beneficial, pathologies of trade, and not trade at all.

Q: Can you provide some examples?

Sadly, they are very familiar to us.

Theft, we understand, is predatory behavior. There is no consent, just taking. Coercion and exploitation are exchanges where there seems to be consent, but someone has their arm twisted. Coercion means you are twisting their arm, and exploitation means someone else is, and you are taking unfair advantage of this.

Predatory, coercive, and exploitative behavior can be some people’s idea of what business is about, because it can look like short-term gains. However, serious business people recognize that this won’t work in the long run, for a simple reason: Theft, coercion, and exploitation breed resentment, and resentment leads to conflict, not repeat customers or happy workers. The social psychology research into justice is absolutely clear on this.

So, for your business to succeed, you need large and strong markets, and to have such markets, you need trust, and trust means people can count on fairness, meaning voluntary, mutually beneficial exchanges. Anything else is going to blow up eventually.

Q: Why is law good for business?

Trusting the market also means trusting that other people will keep their bargains. This is one place that law comes in. Law protects markets in two ways: It ensures people will keep their bargains, and helps ensure these bargains are voluntary and mutually beneficial.

Q: Did Adam Smith have anything to say about this?

He is often blamed for the idea that law is the enemy of business—the less law there is, the better for business. Just as before, that is absolutely not Smith’s idea. Of course, business lawyers (and entrepreneurs) recognize there are burdensome, illogical, and outdated regulations, and that these don’t help business. Not all law is efficient.

Nevertheless, Smith saw law as the friend of the market, for a very good reason. For him, the enemy of the market is power, specifically, concentrated economic power. That’s because people with a lot of economic power will try to distort the market so that it does not work for everyone, but only for themselves—in other words, they will attack the fairness of the market, and attack laws that protect the market by protecting consent and reciprocity. When powerful people use their power to distort the market and bend or break the law, they destroy trust, and so they ultimately destroy the market.

So, if you want to do well in business, you need to build the market, and that means trust, which means justice, strong laws, and the rule of law for everyone.

Q: Why is business good for peace?

If you take all of these steps in pursuit of good business, you are also, by the way, building peace.

Q: How so?

To explore this, let me turn to another 18th century thinker, Immanuel Kant. Kant is famous for many things; I just want to look at one, his 1795 essay, “Towards Perpetual Peace.”

Kant was writing near the end of the second Hundred Years’ War—another hundred years of war between France and England, involving all of Europe. Those are the circumstances in which Kant is writing, and those are the conditions under which he announces that he thinks he sees a way towards perpetual peace. Is he crazy? By suggesting a path towards permanent peace in the middle of war, he probably sounded crazy to his audience.

Q: Why did Kant think peace was possible, even likely?

Because he really understood human nature, he understood business, and he had (literally) read his Adam Smith. Kant said that if countries trade, if they build global markets, then they are less likely to go to war, because war is bad for business. Merchants know this, their bankers know this—conflict disrupts your trade, your investments, your profits. 

However, not all economic exchanges can build peace equally well. My interest has been in what kind of commerce can build this kind of peace. Not theft, coercion, or exploitation—these kinds of exchanges create resentment, not peace. For markets to support peace, trade has to be real trade, and investment real investment, not predation, coercion, exploitation, or speculation. In the long term, only voluntary, mutually beneficial, and reciprocal exchanges build the kind of market relationships that states, and business leaders, don’t want to disrupt. 

So, we’ve come full circle. Justice is good for business, because it is good for markets, and strong, just markets—that is, sound business practices—are good for peace.

Q: What about business being good for justice?

Business is good for justice because people want more than simply a job (though they need work—nothing breeds resentment like being unable to work). More than work, though, people want to participate, they want to be in the game. People want to have the chance for their energy and creativity to go towards something that benefits them, and benefits others. 

Adam Smith understood this, and understood the energy that is generated by people engaged in strong markets—they produce more wealth, and they invest in each other, and in their society. If your business creates work for others, it creates a path towards their participation, in the economy and in society. When people participate, they invest—they invest in their work for you, and they invest in the society that is giving them work on meaningful terms.

This gets at the heart of how people measure the fairness of their society. Do they get a chance to put something meaningful in, and do they get something meaningful back out? If so, this is the essence of justice on a personal level, and once again the social psychology of justice confirms that this is what fairness means to people.

So, if you invest in people—in human capital—then people will invest their energy in your business, and they will invest in society again, which also helps build stronger markets. In this way, business builds justice, justice builds peace, and peace builds business.

Frank J. Garcia, who is a board member of the Journal of International Economic Law, joined the BC Law faculty in 2001. He has served as a visiting professor at a number of schools around the world, including the University of Paris, University of New South Wales, and University of the Republic. Garcia also served as the Katherine A. Ryan Distinguished Visiting Professor at St. Mary’s University School of Law/University of Innsbruck, Austria. In the past, Garcia has served on the executive board and as the vice-chair of the ASIL International Economic Law and International Legal Theory Interest Groups, and on the Board of the Law School Admissions Council.